The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Rhoon on November 01, 2016, 02:03:56 PM
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Hello all,
I have a scenario I will be facing in the new year and I wanted to get everyone's advice to see if I'm missing any other potential opportunities.
Setup:
- Bonus + back pay commission check is expected to be between $23K and $27K
- Tax Refund: Last year was around $8K and we're expecting $8K back (roughly calculated) and then another $8K from my solar panel rebates. I have already paid over $16K in taxes this year so the credits should hold.
Debts:
- Solar Panels: $23K @5.9% (payment is $178, paying $300/mo)
- DW Student Loans: $32K @ 6% (Payment is $270, paying $300/mo -- I tried paying more but my cash flow got crushed)
- 401(k): $18K for 2017 (I impose this as a debt unto myself to make sure I pay myself first): Generally $1500/mo
- Truck: $40K (I've taken a lot of face punches over this already, so yes I get the concept here on the forums). Payment is $755/mo
Scenario 1:
Max out my 401K with the commission + Bonus check, wiping out the $18K in January. Since my company contributes a set percentage (3%) to my 401K whether I contribute or not, I don't lose any matching. This would reduce my taxable remainder to around $5K and $8K which is about $1600 (give or take). The remaining I can either 1) Put against the solar panels 2) Student Loans or 3) tIRA (mine and/or my wife's)
- Pro: 401K Is maxed, no lose of contributions;
Cash flow per month would increase by about $1200 - $1500/mo which I can use towards debt services.
I should be able to combine the tax return with the remainder and kill off the solar panels as well
- Con: I'm still carrying the debt load of the student loans
Scenario 2:
Follow my standard 15% 401K contribution ($5K); lose $5K to taxes and the remaining balance use to pay off debts and then contribute to my 401K as normal
- Pro: $18K left over + $16K from tax refund would be enough to wipe out my wife's student loans
- Cash flow is improved by $300/mo
- Con: 401K still needs to be maxed
The Tax refund I was anticipating putting towards the solar panels to get them paid off. Whatever that amount ends up being.
I'm pretty sure I'm going to go with Scenario 1 if the numbers hold, but I wanted some feedback if there are other options I'm not thinking of.
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Sooo, you have some debt, but none of the rates you list are terrible. What's the APR% on the truck?
I see you're paying extra on two different debts. Why not put 100% of your extra payments toward one or the other? You'll eliminate it faster that way, which will improve cash flow and give you a morale boost.
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I wanted to get everyone's advice to see if I'm missing any other potential opportunities.
- Truck: $40K (I've taken a lot of face punches over this already, so yes I get the concept here on the forums). Payment is $755/mo
I'm pretty sure I'm going to go with Scenario 1 if the numbers hold, but I wanted some feedback if there are other options I'm not thinking of.
Scenario 3: Sell the truck, get a beater car, pay off your wife's student loans and fund your 401k on January 1. Take the improved cash flow of over $1K per month ($755 + $300), add it to the $300 you're already paying, and be done with the solar panel debt in less than 18 months.